The rating is supported by TTPC’s strong business profile,
underscored by the favourable terms of its Power Purchase Agreement (“PPA”)
with Tenaga Nasional Berhad (“TNB”), commendable operating performance and
healthy cashflow that supports its debt-servicing ability. Similar to all other
IPPs, however, TTPC is exposed to regulatory and single-project risks.

Since its commissioning, TTPC has kept its commendable
operating performance, hence enabling it to meet all the performance
requirements set out in the PPA to earn full available capacity payments. The
Company has also been able to operate within the forced-outage limit of 6%
since its commissioning, and has met the requirements of its combined first and
second Availability Target (“AT”) blocks (i.e. 2004–2009). Going forward, RAM
Ratings opines that TTPC is on course towards meeting the requirements of its
third AT block (2010–2012). Given the Plant’s efficient performance, TTPC has
also been able to fully pass through its fuel costs to TNB.

Based on RAM Ratings’ sensitised cashflow, TTPC’s annual
finance service cover ratio (with cash balances, post-distribution) on
principal repayment dates is expected to come up to at least 1.4 times. We note
that the Company had not paid the maximum allowable dividends to its
shareholders during the period under review, despite being permitted to do so
by the covenants under the Trust Deed. However, our cashflow analysis assumes
that TTPC will pay optimum dividends to its shareholders – pursuant to a
shareholders’ agreement dated 23 May 2008 – while adhering to its financial
covenants throughout the Bonds’ tenure (i.e. on a forward-looking basis, as
opposed to only the year of assessment).

RAM Ratings has reaffirmed the AAA ratings of Golden Crop
Returns Berhad’s (“Golden Crop” or “the Issuer”) Series 1 and Series 2 Sukuk
Al-Ijarah (“Sukuk”). Concurrently, the respective ratings of the Issuer’s
Series 3, Series 4 and Series 5 Sukuk have been upgraded from AA2, AA3 and A1
to AAA, AA1 and AA2. All the long-term ratings have a stable outlook. The
rating upgrades are premised on the corresponding Sukuk’s improved collateral
support after an adjustment in our valuation approach for commercial real
estate (“CRE”)-backed transactions involving oil-palm plantations. The stable
outlook is underpinned by our expectation that the relevant plantation assets
will exhibit a stable performance and, in turn, support the debt obligations
for the remaining tenure of the transaction.

Golden Crop is a trust-owned, special-purpose company that
had been set up as the financing vehicle for this sale-and-leaseback
transaction, backed by 17 plantations and 5 mills of entities (“Lessees”)
within the Boustead Holdings Berhad Group (“Boustead” or “the Group”).
Following the exercise of the first 2 call options by the Lessees to redeem
Tranche 1 and Tranche 2 of the Sukuk, Golden Crop now has 13 remaining estates
(“the Estates”) – with a total land area of 28,928 hectares (“ha”) – and 4
mills (“the Mills”) (collectively, “the Plantation Assets”), which form the
collateral for the outstanding RM242 million Tranche 3 Sukuk.

Pursuant to the adjustment in our valuation approach for oil
palm plantations-backed transaction, our sustainable-cashflow assumption for
the Estates has increased 19.9% to RM48.8 million. Correspondingly, the
adjusted value of the Estates, together with the Mills, sum up to RM444.1
million (from the previous RM376.0 million). This has resulted in lower
loan-to-value ratios of a respective 29.1%, 36.3%, 44.8%, 48.4% and 54.5% for Series
1 to 5 of the Sukuk, along with higher debt service coverage ratios of 3.8
times, 3.0 times, 2.5 times, 2.3 times and 2.0 times. The transaction is also
underpinned by structural features, including the trigger mechanism that allows
recovery via the disposal proceeds from the Plantation Assets before the
transaction defaults, and the liquidity reserve that is equivalent to 2
periodic distributions of income and 12 months of the Issuer’s expenses.

In FYE 31 December (“FY Dec”) 2011, the Estates recorded a
2.7% year-on-year (“y-o-y”) increase in net operating cashflow to RM113
million, mainly due to stable yields of fresh fruit bunches (“FFB”) and
higher-than-assumed FFB selling prices. For the same year, the Mills’ overall
oil- and kernel-extraction rates stayed relatively stable at 20.7% and 4.4%,
respectively. Overall, the Lessees generated a healthier cashflow of RM175.3
million (FY Dec 2010: RM137.9 million), backed by a higher average CPO selling
price of RM3,275 per MT (+42% y-o-y). Supported by the anticipated firm CPO
prices and stable FFB production, we envisage that the Lessees will be able to
sustain their performance.

RAM Ratings has received notification from Boustead that the
Lessees have exercised their respective call options to buy back the relevant
Estates and Mills. The exercise price is expected to be paid by 22 October
2012, a month prior to the maturity of the Tranche 3 Sukuk, as stipulated under
the terms of the transaction. RAM Ratings will continue monitoring the
transaction and make the appropriate announcements when necessary. For a
detailed explanation on our adjusted valuation approach for oil-palm
plantations-backed transactions, please refer to Criteria Update: CRE-backed
Transactions Involving Oil-Palm Plantations, published on 12 April 2012.

Thursday, June 28, 2012

GLOBAL: CIMB Group and Maybank have been overtaken by HSBC as top global managers of Sukuk in the last year, but the Malaysian banking giants may still remain at an advantage due to relatively better underlying credit fundamentals.

“The ratings gap that had long separated banks in Asia from their western peers has now essentially been closed because the stable credit quality of Asian banks throughout the global financial crisis has resulted in a comparative improvement in their ratings.

“In contrast to western banks that have experienced significant credit quality challenges since the outset of the global financial crisis, Asian banks are only moderately leveraged, largely deposit funded and generally conservative in their lending,” said Jean-Francois Tremblay, a Singapore-based associate managing director at Moody’s.

Dealogic data shows that HSBC has managed 18 Sukuk worth US$8.42 billion as at the 27th June this year; although CIMB and Maybank Investment Bank managed more deals, at 33 Sukuk each, valued at US$7.3 billion and US$6.21 billion, respectively.

A year earlier, the league table for Sukuk arranging was topped by CIMB, followed by Maybank, with US$4.86 billion and US$4.41 billion-worth of deals managed, respectively, while HSBC came in third with US$3.14 billion-worth of deals.

Moody’s, which rates banks in Indonesia, Malaysia, Singapore, Sri Lanka, Thailand and the Philippines, also noted that Southeast Asian banks are taking advantage of opportunities created by the retreat from Asia of European and other foreign banks; although this could emerge as a double-edged sword in some banking systems.

“Rapid growth in both size and geographic scope has contributed to improve asset quality and profitability metrics, but it has also made Southeast Asia’s banks take on sizeable new risks,” said Tremblay, who cautioned that the banks must continuously update stress tests to reflect these changes and assess their resilience in an economic downturn. “The biggest risk to the banks is the contagion from the euro area through trade channels,” he said.

SI Capital is indirectly owned by Sarawak Incorporated Sdn Bhd, which is in turn a 100%-held subsidiary of the State Financial Secretary of Sarawak. The redemption of the BaIDS ultimately depends on the stream of payments due from the Sarawak State Government (“the State”), under 3 agreements with SI Capital, i.e. the Concession Agreement, the Lease Agreement and the Redeemable Preference Shares Agreement.

The rating takes into consideration the highly predictable cashflow backed by the said agreements, the credit strength of the Company’s counterparty (the State), and the tight transaction structure as well as restrictive covenants of the financing facility, which minimise cashflow leakage and safeguard SI Capital’s debt-servicing ability. “Given that SI Capital has minimal performance obligations under the various agreements, the rating essentially reflects its counterparty risk, which is deemed low as the State has a strong credit profile. This is underpinned by the Sarawak State Government’s healthy fiscal performance, superior liquidity position and supportive relationship with the Federal Government, although balanced by the concentration of the State’s economy on the resource-based sector and its increasing debt burden,” explains Thong Mun Wai, Head of Real Estate and Construction Ratings.

Notably, payments from the State to SI Capital have been prompt, typically received a few days before the due date; this is envisaged to remain so. Going forward, the Company’s projected debt service coverage ratio is expected to be kept above 1.90 times throughout the tenure of the financing facility, i.e. well above the covenanted 1.25 times.

RAM Ratings has assigned long- and short-term issue ratings of
AA1 and P1 to Sabah Development Bank Berhad’s (“SDB” or “the Bank”) Proposed
Commercial Papers Programme (“CP”) of up to RM1 billion in nominal value and
Proposed Medium-Term Notes Programme (“MTN”) of up to RM1 billion in nominal
value; the aggregate outstanding nominal value of the CP and MTN cannot exceed
RM1 billion at any time. Concurrently, the existing issue ratings of SDB have
also been reaffirmed (refer to Table 1). All the long-term ratings have a
stable outlook.

SDB is a development financial institution (“DFI”) that is fully
owned by the Sabah State Government (“State Government”, whose debt facility is
rated AAA/Stable/P1 by RAM Ratings). Given its position as one of the State
Government’s funding conduits, the Bank plays a strategic role in supporting
its parent’s development goals. Meanwhile, the State Government has been
supportive of SDB’s operations, with large deposit placements and Letters of
Support for its debt securities.

Given the nature of its business, some of SDB’s loans may entail
higher risk, although they are adequately secured. As at end-December 2011,
SDB’s gross impaired-loan ratio stood at 12.5%. Meanwhile, we also note that
the Bank is exposed to the private sector, where lending is mainly directed at
the real-estate segment. We will continue monitoring SDB’s increasing
commercial exposures in relation to its role as a DFI.

As at end-December 2011, SDB’s tier-1 risk-weighted
capital-adequacy ratio stood at 20.0%. Given the Bank’s sizeable past-due loans
and relatively low loan-loss reserve coverage, its capital loss-absorption
capacity is deemed adequate. At the same time, SDB is heavily dependent on
wholesale borrowings, which exposes it to roll-over risk that is compounded by
the Bank’s very low holdings of liquid assets. Nonetheless, we expect the State
Government to provide ready liquidity and capital support if needed, given
SDB’s strategic importance to the State.

Table 1: SDB’s debt
instruments

Instrument

Rating action

Long-term rating

Short-term rating

Rating outlook

Proposed CP
of up to RM1 billion in nominal value and Proposed MTN of up to RM1 billion
in nominal value*

Assigned

AA1

P1

Stable

CP of up to
RM1 billion (2012/2019) and MTN of up to RM1 billion (2011/2031)*